A widespread financial myth suggests that maintaining a small unpaid credit card balance month-to-month improves credit scores. In reality, carrying a balance provides zero credit scoring benefit while costing hundreds in unnecessary compound interest.
1. How Credit Scoring Algorithms Measure Payment History
- On-Time Payment Record: Credit bureaus evaluate whether you made at least the minimum required payment on time. Whether you pay the minimum or the full balance in full yields the exact same positive "Current / Paid as Agreed" checkmark.
- Utilization Calculation: Lower utilization is always mathematically superior. A reported $0 balance is vastly better than a revolving balance that incurs 25%+ APR finance charges.